Based off the market behavior in mid-June and again last week, is the stock market preparing us for something?
The middle of June and last week are good examples of what, we believe, we could be seeing more of in this second half of the year and that is periods of sporadic heightened volatility. The main driver for these random bursts of volatility is the market struggling with the growth and inflation outlook and expectations over the coming quarters.
In this type of environment, portfolio diversification is truly your friend.
For the week ahead, the big data point for the week is the Consumer Price Index report that is released on Tuesday. If this inflation reading comes in hot, then don’t be surprised if we get another episode of heightened volatility. I say this because the Federal Reserve is already nervous about inflation and if we do get a hot number, the market could start pricing in a sooner tapering of the bond buying program as well as the timeline for interest rate hikes.
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